Getting Ready

This issue, Direct begins a three-part series on the fundamentals of a successful database marketing program.

The first step in any database marketing project is a readiness assessment. It will help you determine where your organization is on the learning curve, define the degree to which it already possesses the tools and skills necessary to succeed, and figure out how database marketing fits into corporate strategy.

There are also cultural considerations. Database marketing differs dramatically from other forms of advertising and marketing. Results measurement must take the long view, since there's typically a significant up-front expense that must be paid, and because many strategies can only be measured over time. A management addicted to immediate gratification and short-term measurement does not adapt easily to database marketing as a core business strategy.

The most important key to identifying these cultural challenges, as well as assessing your organization's current state of readiness, is to identify and interview all the internal stakeholders.

Organizations are collections of people, and people do things for only two reasons: to gain a benefit or avoid a loss. A stakeholder is anyone whose job will be affected — positively or negatively — when running a database program.

It also is critically important to realize that in every organization there are typically only a handful of people who can say yes to the size budget required to create and manage a database marketing program — but there are usually dozens who can say no. The most common mistake is to ignore the naysayers. Their needs must be addressed, and they must be educated on the benefits of the strategy.

At the same time you are interviewing internal stakeholders to uncover their desires and hidden agendas, you also should take a look at your organization's previous experience, if any, with database marketing. A review of prior efforts might reveal some parts of the process the company is already capable of implementing, which can save both time and money. From that analysis, you can identify resource and training needs.

In any database program, an important goal is to make sure the organization will have access to the metrics required to judge to what degree the effort (and the investment) is supporting corporate objectives as well as marketing-specific goals. The ability to deliver those supporting analytics also is a consideration in selecting the necessary technologies.

Because marketing technologies are optimized to collect and retain data important to marketing, they are usually capable of producing information not found elsewhere in the company. Smart marketers realize this and take advantage of the capability by producing a series of reports providing senior management with a periodic snapshot of the organization's vital signs. This can be sales by customer segment, product, geographical region or increments of time, plus response and sales measurements.

Remember, too, that reports of this nature should be viewed in perspective. How is the organization doing now compared with last month, last quarter or last year? Think of a sales report as if it were a picture of a rose. It might be pleasant to look at, even beautiful, but what's most important is whether the rose is opening or closing.

When you launch the type of ongoing communication and sales program typical in database marketing, you'll want to devise a methodology to subdivide your customers into manageable groups of people who are alike in ways that matter for marketing purposes.

There are many ways to segment customers. The most widely used segmentation schema is to divide the universe into deciles or quintiles by RFM (recency, frequency and monetary values) or purchase levels. Successful implementations also segment by product, or demographically or appended cluster codes.

The best way to approach this task is to use analytics to drive the segmentation, rather than guesswork or logic. Profiling and modeling almost always will reveal natural groupings of customers and prospects. In customer segmentation, of course, the high-order information is usually behavioral. How do the customers interact with the organization? How much are they spending and what are they buying?

If you're using direct mail or e-mail to communicate with your customers, here's a tip that will help your creative agency or internal creative unit greatly. Once you have segments in place, profile them by demographics, psychographics and — if you've appended information that will allow it — attitudes. Providing that information to a creative director or copywriter will help them address the customer or prospect in ways that are more relevant to the target's likes, dislikes and needs.

Another important part of the readiness assessment is to look at what technologies already exist within the firm. You may discover, for example, that your analysts are using programs like SAS, SPSS or Brio in their day-to-day work, so you already own licenses that can be used for analytics and reporting.

Of course, it's unlikely that your organization will own an unused license for expensive campaign management or CRM software unless someone bought it in advance of defining the needs (don't laugh — it happens). Because you will have already thought through your segmentation strategy and determined what's important to the stakeholders, you should be able to identify your technology requirements. This doesn't mean you have to select the software or service bureau this early in the process; it means you can define the functionality you seek in some detail. That will allow you to develop a plan.

There are two “land mines” to avoid in this part of the process:

• Don't automatically assume it's in your organization's best interest to implement the technologies internally, no matter what IT tells you. Sometimes internal implementation makes sense, particularly if you have people on staff with experience in marketing database systems who have time available to work on the project.

Just as often, however, there is a good business case to be made for outsourcing the work to an application service provider (ASP) that specializes in marketing.

Overall cost matters greatly, of course, but another important consideration is to take the long view. Which approach will deliver what you need today and guarantee you'll have access to advancing technologies and new marketing techniques over time?

Even more important is the time it will take to bring the system up. Internal implementations are notoriously slow to launch, usually taking at least twice as long as the development timeline that can be delivered by an ASP. Setting aside the frustration factor, there is a real “lost opportunity” cost in delaying implementation.

• Don't let vendors redefine your needs. There is an inside joke among marketing database and CRM vendors that it's usually possible to tell which vendor a prospect last talked to by listening to the buzzwords the prospect uses.

There is a fine line to walk here. If you're going to solicit proposals to select a software vendor or ASP, you certainly don't want to preclude the possibility that they may have an idea that didn't occur to you. So absolutely, positively write your request for proposal in a way that allows the vendor or ASP to contribute innovative approaches wherever possible. Shutting down this type of input by defining the response requirements too tightly is a very common mistake.

The trick, though, is to listen to vendor input without letting it take you off track. For example, if a software suite has advanced functionality that allows integration of e-mail into marketing campaigns, the vendor obviously will attempt to elevate that feature in importance. But if you already know the Web plays a small role in your communications mix, the feature ought to be kept in perspective. Evaluate the offering based on how well the implementation approach handles your real needs.

The final step in the readiness assessment is to create an “inventory” of the products and services you will be selling, along with the corresponding offers for those products you'll make in your communications and a ranked ordering of those products and services to set priorities, from the highest to the lowest.

Not all products necessarily lend themselves to direct marketing, and not all products necessarily need to be promoted to customers. Sometimes, the appropriate is not product-specific. One example of this is traffic-building storewide discounting at a retail store.

Once you've taken your inventory and decided — with the appropriate stakeholders — which items to promote and in what priority, you then have to determine what the offers will be. The typical choices are to offer a special price or payment terms, customization to meet specific needs, a relevant premium, bundling two or more products into a single offer, limited availability, or a focus on a specific benefit. In any case, every communication, if its purpose is to generate an inquiry or make a sale, must include some kind of offer — the more compelling the better.

Creating compelling offers is not a trivial task. It may require multiple conversations with the front-line salespeople who typically understand customer buying motivations better than anyone else in the company, and it certainly must include product managers. Most often, coming up with offers to test is an iterative process requiring multiple meetings.

You also may want to include “soft touch” communications in your database marketing communications. These are mailings, e-mails or calls designed to make customers feel good about the relationship, such as a simple thank you, or some kind of unexpected “surprise and delight” tactic.

Once you've completed the readiness assessment, the next step is to merge all your findings into a single, unified database marketing strategy. It's important to do this in detail and on paper, so that everyone who will either influence the outcome or be influenced by it will have access to a clearly defined statement of needs and the solutions that will satisfy those needs.

Done properly, this document will help to control the “scope creep” that can sometimes doom complex projects of this nature.

In part two next issue we'll look at database creation and management.

To access the complete series of articles and charts, visit Direct's Web site (www.directmag.com).

---

Richard N. Tooker is vice president and solutions architect at KnowledgeBase Marketing Inc. in Richardson, TX.